Who really deserves a pay rise?


Everyone in the UK, it seems, is angry about their pay.

Rail strikes are set to escalate over the summer. Bus drivers, refuse collectors and baggage handlers have staged walkouts across the country; more than 100,000 postal workers at the Royal Mail Group have voted to follow suit. In the public sector, unions representing teachers and doctors, nurses and civil servants are preparing to ballot their members on industrial action after ministers announced pay deals that equate to real terms wage cuts.

The outrage has created some incongruous alliances: rail workers demonstrated in June outside the Old Bailey in solidarity with criminal barristers who were rallying in wigs and gowns to protest against miserly legal aid fees.

And with polls showing significant support for striking workers, unions are gaining ground in workplaces where they had previously struggled to gain a foothold, from the Financial Conduct Authority to the first vote for national strike action by home-based call centre workers.

With inflation at a 40-year high, the surge in strike threats raises the question: who really deserves a pay rise?

Among different jobs, some of the biggest losers in recent years include NHS consultants, midwives and teachers. The public sector has fared worse than private business. But perhaps the biggest reason for the wave of unrest is that wages across the entire economy have struggled. The current cost of living crisis follows the worst peacetime decade for pay since the second world war.

A decade of lost pay growth

On the eve of the pandemic, average weekly earnings were still below the peak they reached before the 2008 financial crisis in real terms.

This stagnation is exceptional by historical standards: until 2007, wages had grown fairly steadily throughout the postwar period. If that trajectory had continued, they would now be 47 per cent higher in real terms.

Labour unrest is building in a number of countries as a result of high inflation. But the squeeze on UK salaries in recent years is also exceptional by international standards, at least among wealthier countries. Despite the UK’s relatively strong record on employment in the years following the global financial crash, wage growth has been weaker only in Japan, Mexico and the eurozone countries that bore the brunt of its debt crisis.

This underperformance was partly due to sterling’s depreciation after the 2008 crisis, which drove inflation higher than elsewhere in Europe; but it also reflects the UK’s dismal record on productivity.

The well-off are pulling ahead again

The political mood is also being driven by a feeling that economic gains have not been shared equally.

Wages have actually risen fastest for the lowest paid in recent years — thanks to the rapid increase since 2016 in the minimum wage. But this has not helped those workers slightly higher up the pay scale to catch up with those at the top. Moreover, cuts to benefits meant that many of the poorest households were no better off, even if their wages increased.

People in some jobs that used to pay comfortably above the minimum wage — such as senior care workers — feel they could now earn almost as much in a junior role with less responsibility and stress, or in a supermarket or warehouse job with lower skill requirements.

While pay has stagnated for many people on modest incomes, the highest earners have recently begun to pull ahead again on the back of a bumper bonus season.

Research by the High Pay Centre think-tank shows executive pay is rebounding after a period of relative restraint, with the gap between chief executives’ pay and that of average employees set to widen. Payroll data from HM Revenue & Customs, which includes bonuses, shows pay for the top 1 per cent of employees rose 5.3 per cent in real terms in the two years to April 2022 — almost five times the rate of growth for the lowest paid 10 per cent.

Public sector squeeze

Public sector workers are especially angry because they have already suffered a prolonged squeeze on their real wages.

While average earnings across the economy have stagnated, many public sector workers are significantly worse off than they were in 2010, at the onset of the period of austerity, the tight fiscal policies adopted by the UK in the aftermath of the financial crisis.

Public sector workers used to earn significantly more than private sector counterparts. But that pay premium has now all but disappeared, according to estimates by the Institute for Fiscal Studies.

Ben Zaranko, an IFS researcher, notes that the biggest cuts have fallen on the most senior and highly paid staff. Across the NHS, pay has fallen by about 5 per cent in real terms since 2010 but support staff have fared relatively well — salaries for ambulance support staff have actually increased in real terms. Pay for nurses has fallen more than 7 per cent, that of midwives by 10 per cent and that of a hospital consultant by 12 per cent.

In schools too, experienced teachers’ pay has fallen twice as much as that of new entrants to the profession over the period from 2007 to 2021.

The situation in the private sector is more varied.

Few workers are likely to see their wages match inflation in the coming months. The Bank of England says pay deals are averaging about 5 per cent, while prices are set to rise in double digits. But in a tight labour market, many private sector workers are winning bigger bonuses, with some securing mid-year salary top-ups, rather than one-off payments.

Unite, one of the biggest trade unions in the UK, has secured so-called cost of living pay deals for low paid staff at the banks NatWest and Barclays, as well as a bonus for staff at Lloyds Banking Group. It has also called off strike action at British Airways and at the pharmaceutical group GSK after winning improved pay offers.

Real time data from Indeed, the job search site, shows advertised pay rates in almost all sectors of the economy have continued climbing in recent months, even as the economic outlook worsened.

In the hospitality sector, where labour shortages have been most acute, advertised wages were almost 10 per cent higher than a year ago in May, while pay for warehouse and construction workers had risen by about 7.5 per cent. Even in areas such as law and management, where pay was falling outright at the start of the year, it had picked up, albeit more slowly.

Public sector workers are therefore falling further behind.

Official data shows the gap between private and public sector pay growth, including bonuses, has rarely been wider, with the average pay of public sector workers up just 1.5 per cent in the year to May, against total pay growth of 7.2 per cent for the private sector.

Line chart of NHS non-medical* workforce, by nationality (2015-16 = 100) showing The NHS is increasingly relying on staff from outside Europe

That is why the government has found it untenable to hold down public sector pay deals — for nurses and teachers in particular — in the 2 to 3 per cent range they had been targeting.

But the pay awards announced this week — which average about 4 to 5 per cent, skewed in favour of staff in lower pay bands — have not gone far enough to appease anger, with unions still planning to consult members on potential strike action.

In many parts of the public sector, there are worrying signs of longstanding problems with recruitment and retention — which improved during the pandemic as job options elsewhere dried up — starting to re-emerge. A prolonged pay squeeze could only make these worse.

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